How to Budget for Car Expenses and Running Costs

June 19th, 2019

Australians love their cars. Whether it’s driving down to the beach on a Sunday morning or taking the road trip of a lifetime, cars are an absolutely crucial part of most peoples’ day to day lives.

That being said, owning a car is an expensive endeavour. Between the cost of the vehicle, petrol, mechanic bills, registration and insurance, there are just so many different expenses involved that budgeting effectively for a car can be a daunting task indeed.

As with so many things in personal finance, the trick to effectively budgeting for your vehicle is breaking down the costs involved into different categories, and approaching each of them individually. Using this strategy, things become much easier!

With this in mind, we’ve prepared the gold standard guide to budgeting for a car – and its associated costs – so you won’t be left stranded (you’re welcome).

Interesting fact: In 2018, the average amount our customers borrowed for vehicle maintenance or a car repair loan was $768.

Ask yourself: do you really need a car?

The first question you should be asking yourself is whether or not a car is an absolutely integral part of your life. Cars are expensive, and owning a car needs to be a justifiable decision. A lot of Australians live in large capital cities with pretty good public transport and relatively short commutes – if you’re one of these people, the costs involved in owning a car might well outweigh any benefits.

This being said, for a lot of us there is no question about the necessity of car ownership. Ultimately, the decision is up to you, but it is worth thinking about ditching the car for other options, like public transport and car share programs like GoGet and CarNextDoor.

Budgeting to buy

If you’ve read this far, then we’ll assume that you either own a car, or are in the market for a new one. Buying a car is often a stressful decision, as there is a lot of money involved and a lot of things that could go wrong – no one wants to buy a lemon!

The place to start is establishing a budget. Figure out how much of your savings can be allocated to the purchase of your vehicle, and figure out whether that’s enough to get you on the road. Alternatively, if you’re looking at taking a loan or using finance to pay for your car, consider how much money you can afford to pay each week. Having an accurate understanding of your price range will make choosing a car and negotiating a price a much easier process.

New or used?

The choice of whether to buy a new or used car is a difficult question, but for the budget conscious, used cars are often the better option.

There are so many resources out there for advice regarding buying used cars, but the information generally boils down to the following three points:

  • Get an independent inspection before purchase – have a trusted mechanic or car-savvy friend look over the vehicle for any glaring structural or mechanical deficiencies. This is vitally important, as you don’t want to end up with huge mechanic bills down the road.
  • Conduct background checks – using the Personal Property Security Register, you can check whether the car in question has any outstanding loans against it, or if it has been listed as being stolen or written off.
  • Always read the contract – this might sound obvious, but a lot of people just sign documents blindly, leading to difficulties later.

Another point to be made is that it is better to buy used cars through a licensed dealer. Used car dealer’s must adhere to certain regulations designed to protect consumers.

If you choose to buy a new car, many of the same rules apply.

Ultimately, the most important thing to remember is to stick to your budget, and to buy a vehicle that meets your needs – don’t let a car dealer talk you into buying a car that you really can’t afford.

Choose an economical car

Unless you’re a station hand or tradesperson, or you are looking for a towing vehicle (caravans, trailers, etc), it is likely that you really don’t need a large, powerful car. Try and choose a vehicle that has moderate to low fuel consumption and low ongoing costs. This means avoiding large cars like four wheel drives and trucks, and steering clear of luxury brands, which often charge higher prices for spares and parts.

What are the ongoing costs?

Once your vehicle is safely in the driveway, it’s time to start thinking about the ongoing costs involved in car ownership. It might be helpful to break down expenses into two categories – fixed and variable.

Fixed expenses

Fixed expenses are running costs which remain the same each year. This might include registration, insurance, and regular services.

Fixed costs are a lot easier to budget for than their variable counterparts. Ideally, you should put away a small amount of money each week to cover this type of cost, given that these expenses are of a known value and occur only at certain times of the year.

Additionally, it is helpful to shop around for these items – at least as far as insurance and servicing is concerned.

Variable expenses

Variable expenses are harder to budget for, but not impossible. Variable expenses might include things like petrol, tyres, tolls, and unexpected repairs. However, costs for tolls and petrol are generally reasonably consistent throughout the year. Keep a hold of your receipts and keep a diary, so you are able to accurately ascertain the total weekly cost. Using this information, you can effectively allocate a weekly budget towards driving.

In contrast, repairs and replacements (such as for tyres) are often quite unexpected. Depending on the type of insurance you have, it might be possible to offset some of these costs. Either way, it’s a good idea to create a separate emergency fund specifically for if your car breaks down. Put aside a few dollars here and there, and you’ll thank yourself later!

Extra savings

A lot of insurance companies are competitive in regards to car insurance. Shop around and you’ll be bound to save some pennies.

You should also review any car-related tax or insurance offsets offered by your state government. For example, in NSW it is possible to offset some of the cost of your car rego if you spend more than $25 a week on tolls.

And if you use your car for work, there are sometimes car-related expenses which you can claim on your tax return. Speak to a registered tax agent to take full advantage of these benefits.

Budgeting for financially responsible car ownership

No one likes to get caught in the lurch with repairs or registration when it comes to owning a vehicle. Whether you’re using it every day for work, or just cruising around with your mates to the beach on the weekend – with a little bit of financial preparation you’ll be able to continue using your vehicle all year long.

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